Appraisals, Valuation/Pricing, & Investment Properties Flashcards
accrued depreciation
the total loss in value of a building from all causes; part of the cost approach to value.
adjustment process
the process used in the sales comparison approach where values are added to or subtracted from comparables to account for the differences from the property being appraised
anticipation
the economic influence on value that indicates that present value is created by the valuation of future benefits
appraisal
an estimate or opinion of value or as being completed by an expert for a particular purpose. The term refers to both the activity and the report.
appraiser
a person who through study and experience is licensed or certified to perform appraisals
appreciation
a rise in the value of a piece of property
balance
the economic influence on value that states that a relationship exists between the value of land and the value of the buildings on the land
basis
the initial price paid for a property. Once capital improvements are added and depreciation (cost recovery) is subtracted, it becomes the adjusted basis.
break-even point
the point (dollar amount) in a percentage lease where the override percentage begins to be calculated.
When evaluating a commercial real estate investment property, breakeven occupancy is the point at which the property’s operating expenses plus loan payments are equal to the amount of potential rental income it produces.
capital gain
the profit realized from the sale of a property for more than was paid for it
capital improvement
a permanent improvement that usually adds value to the property, such as a new roof
capitalization rate
similar to a rate of return, the amount of income an investor hopes to receive from an investment as a percentage of the value of the investment. In the income capitalization approach to value, it’s used to convert a stated amount of income into the value of the investment.
cash flow after taxes
the amount of money left for the year from a property investment after all expenses including the mortgage and income taxes are paid
cash flow before taxes
the amount of money left for the year from a property investment after all expenses including the mortgage are paid but before income taxes are paid
change
the economic influence on value that states that nothing remains the same due to physical, governmental, economic, and social changes that affect property value
combination trust
a real estate investment trust (REIT) that invests shareholders’ money in property equities and mortgage loans
comparable
a property that has recently been sold that is very similar to the property being appraised (subject property). Based on the principle of substitution, the comparable is a good indicator of the value of the subject property.
conformity
the economic influence on value that states that value is created and sustained when real estate characteristics are similar
contribution
the economic influence on value that states that an improvement to a property is worth what the real estate market will pay, not what it cost
cost approach
one of the three approaches to value used to appraise properties, based on the cost of the various components of the building and property. This is used for unique properties for which there aren’t many comparable sales.
cost recovery period
the period of time, set by the government, over which an asset may be depreciated
curable deterioration
damage or wear and tear to the property that is economically feasible to repair — that is, the increase in value of the property as a result of the repair exceeds the cost of the repair.
decreasing returns
the economic influence on value that exists when an improvement to a property adds less value to the overall value of the property than the cost of the improvement
depreciation
in the cost approach to value, the loss in value to any structure due to various factors such as wear and tear
depreciation (cost recovery)
the recovery of the cost of an asset that wears out; this is used for tax purposes.
direct costs
those expenses directly associated with the actual construction of a building, such as labor and materials
economic life
when speaking of a building, the length of time the structure contributes value to the land
effective age
when speaking of a building, an estimate of the age the structure appears to be, given wear and tear, maintenance, and upgrades
effective gross income
the income available for property expenses after deducting a vacancy and collection loss from potential gross income and adding in other income
equity trust
a real estate investment trust (REIT) that invests in a number of different types of real estate and sells shares to investors
